Indonesia Braces for Rising Fuel Costs

Related Articles

JAKARTA— Indonesian authorities are expected to slash fuel subsidies next month by 44 percent, sending fuel costs soaring. Economists say the subsidies are a costly expense that increases Indonesia’s reliance on foreign oil imports. But they remain politically popular and politicians are worried about a public backlash.

Rising gasoline costs are bemoaned across the globe and particularly in Indonesia - a nation heavily dependent on subsidized fuel.

For decades, fuel subsidies have been politically volatile.

The government planned to cut the fuel subsidy last year, but balked in the face of national uproar. This year, the proposed cuts - the first in five years - no longer hinge on a parliament vote.

On his official Twitter account, President Susilo Bambang Yudhoyono admits it will be the toughest decision of his presidency.

Head of a party marred by ongoing corruption scandals and plummeting popularity, the president’s decision is both political and economic, says political analyst Aleksius Jemadu.

"They want to achieve two goals at the same time. They want to achieve their economic goals to decrease the deficit of the state budget, but at the same time they also [want to] take care of their popularity," said Aleksius Jemadu.

In a nation where more than a 100 million people live on less than $2 dollars a day, cheap fuel is good politics.

And, in the minds of economists, the practice burdens the state budget and creates a reliance on foreign oil imports.

Authorities have allocated about $20 billion for fuel subsidies this year, accounting for 15 percent of the overall budget. But, that is not expected to be enough to cover the subsidy’s cost.

Despite the fuel subsidy controversy, Fauzi Ichsan, a senior economist at Standard Chartered, says that Indonesia is still doing very well compared to fiscal deficits in the United States, Europe and Japan.

"While economically it is very prudent to hike fuel prices, domestic fuel prices are lower than international prices by about 30-40 percent and that has created a lot of smuggling and hoarding. On the other hand, there is no fiscal crisis, if you look at the fiscal deficit as a percentage of GDP, in 2012 it was less than 2 percent, like 1.8 percent of GDP," he said.

Fauzi says economists have been pushing for fuel price increases for the past year - not because of the deficit - but because it is economically prudent to do so.

He says that, although inflation could rise when the subsidies are reduced, it should stabilize in the long term. Fauzi says the government should offer cash benefits to minimize the impact on the poor.

Under the proposed changes, private vehicles will pay an additional 21 cents per liter, still among the cheapest rates in Asia.

Suryo Bambang Sulisto, head of the Indonesian Chamber of Commerce and Industry, says that even a reduced subsidy creates a false economy and the government should scrap it altogether.

"We are of the view, we are in opposition, to abolish it altogether so this huge saving can be directed to a more productive use. So, in other words, reallocate this subsidy for something that is more useful, more targeted," said Suryo Bambang Sulisto.

Sulisto says the funds would be better spent on infrastructure, regional growth and education.

But, at a gas station in South Jakarta this morning, 50-year-old Melly says she is definitely going to feel to pinch.

"I have a catering business I’m on the road every day and buy a lot of gasoline," she says. "I just can’t accept it," she said.

The proposed hike is expected to save Southeast Asia’s largest economy an estimated $2.1 billion a year.

At this year's annual South by Southwest film and music festival in Austin, Texas, some musicians from Mali were on hand to promote a film about how their lives were upturned by jihadists who destroyed ancient treasures in the city of Timbuktu and prohibited anyone from playing music under threat of death. As VOA’s Greg Flakus reports from Austin, some are afraid to return to their hometowns even though the jihadists are no longer in control there.

Video

At this year's annual South by Southwest film and music festival in Austin, Texas, some musicians from Mali were on hand to promote a film about how their lives were upturned by jihadists who destroyed ancient treasures in the city of Timbuktu and prohibited anyone from playing music under threat of death. As VOA’s Greg Flakus reports from Austin, some are afraid to return to their hometowns even though the jihadists are no longer in control there.

Video

American warplanes joined Iraq's battle against the so-called 'Islamic State' in northern Iraq late Wednesday, as Iraqi ground troops launched a massive assault on Tikrit. Analysts say the offensive could take the coalition a step further towards Mosul, the largest city held by Islamic State forces. Others say it could also deepen already-dangerous sectarian tensions in the region. VOA's Heather Murdock has more from Cairo.

Video

Tourism is a multi-billion dollar industry in the Philippines. Close to five million foreign visitors traveled there last year, perhaps lured by the country’s tropical beaches. But Jason Strother reports from Manila that the country hopes to entice more travelers to stay indoors and spend money inside new casinos.

Video

The continued fighting in eastern Ukraine and the shelling of civilian neighborhoods seem to be pushing more men to join the separatist fighters. Many of the new recruits are residents of Ukraine made bitter by new grievances, as well as old. VOA's Patrick Wells reports.

Video

Islamic State fighter, a prisoner of Kurdish YPG forces, asked his family asking for forgiveness: "I destroyed myself and I destroyed them along with me." The Syrian youth was one of two detainees who spoke to VOA’s Kurdish Service about the path they chose; their names have been changed and identifying details obscured. VOA's Zana Omer reports.

Video

More is being discovered about the co-pilot in the crash of Germanwings Flight 9525 in the French Alps. Investigators say he was hiding a medical condition, raising questions about the mental qualifications of pilots. VOA's Carolyn Presutti reports.

Video

In cities with heavily congested traffic, people can get around much faster on a motorcycle than in a car. But a rider who is not sure of his route may have to stop to look at the map or consult a GPS. A Russian start-up company is working to make navigation easier for motorcyclists. Designers at Moscow-based LiveMap are developing a smart helmet with a built-in navigation system, head-mounted display and voice recognition. Zlatica Hoke has more.

Video

U.S. federal law enforcement agents arrested two suburban Chicago men accused of trying to join ISIS overseas, while also plotting attacks in the United States. As VOA’s Kane Farabaugh reports from the Midwest state of Illinois, one of those arrested is a soldier of the Illinois National Guard.

Video

Traditional push-rim wheelchairs create a lot of stress for arm, shoulder and neck muscles and joints. A redesigned chair, based on readily available bicycle technology, radically increases mobility while reducing the physical effort. VOA’s George Putic reports.

Video

Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.

Video

Indigenous communities in Cambodia's Ratanakiri province say the government’s economic land concession policy is taking away their land and traditional way of life, making many fear that their identity will soon be lost. Local authorities, though, have denied this is the case. VOA's Say Mony went to investigate and filed this report, narrated by Colin Lovett.

Video

One of the films that drew big crowds last week at the annual South by Southwest festival in Austin, Texas, tells the story of the last human being to stand on the moon, U.S. astronaut Eugene Cernan. It has been 42 years since Cernan returned from the moon and he laments that no one else has gone there since. VOA’s Greg Flakus reports.